Internal Revenue Bulletin No. 2026–2

## IRS Implements 'One, Big, Beautiful Bill Act' in Latest Bulletin

The Internal Revenue Bulletin (IRB) 2026-2, released January 5, 2026, is heavily focused on implementing provisions of the 'One, Big, Beautiful Bill Act' (OBBBA), enacted as Public Law 119-21 on July 4, 2025. This bulletin provides crucial guidance for taxpayers and tax professionals navigating the Act's significant changes to health savings accounts (HSAs), farmland sales, and scholarship credit programs. Specifically, the IRB details major expansions to HSA eligibility encompassing telehealth services, bronze plans, and direct primary care arrangements. The bulletin also offers penalty relief related to the new farmland sales deferral election under Section 1062(a) of the Internal Revenue Code (IRC). A new revenue procedure outlines the mechanism for states to pre-elect to participate in the Scholarship Granting Organization (SGO) credit program, established under new IRC Section 25F. Finally, the IRB includes routine updates to corporate bond yield curves and actuarial tables, as well as an update to the list of areas in which the IRS will not issue rulings on international tax matters.

## HSA Eligibility Expanded: Telehealth, Bronze Plans, and Direct Primary Care

Notice 2026-5 details key changes to Health Savings Account (HSA) eligibility enacted under the One, Big, Beautiful Bill Act (OBBBA). The OBBBA, enacted on July 4, 2025, made significant amendments to Section 223 of the Internal Revenue Code (IRC), which governs HSAs. Section 223 allows eligible individuals to establish HSAs, which are accounts that receive tax-favored contributions, used tax-free for qualified medical expenses.

The most significant changes detailed in Notice 2026-5 relate to telehealth services, certain health plan options offered on exchanges, and Direct Primary Care Service Arrangements (DPCSAs).

### Telehealth Safe Harbor

Section 71306 of the OBBBA permanently extends a safe harbor for telehealth and other remote care services, initially introduced temporarily under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). This safe harbor, codified under Section 223(c)(2)(C), ensures that a High Deductible Health Plan (HDHP), as defined in Section 223(c)(2), does not fail to be treated as such simply because it lacks a deductible for preventive care. The CARES Act provision, effective March 27, 2020, initially applied to plan years beginning before January 1, 2022, and was later extended through taxable years beginning before January 1, 2025. The OBBBA makes this permanent, applying it retroactively for plan years beginning after December 31, 2024.

This means that individuals can now receive telehealth services without needing to meet their deductible, and it won't jeopardize their HSA eligibility. The IRS will treat benefits as telehealth services if they appear on the list of telehealth services payable by Medicare, as published annually by the Department of Health and Human Services (HHS) under Section 1834(m)(4)(F) of the Social Security Act (SSA).

### Bronze and Catastrophic Plans as HDHPs

Section 71307 of the OBBBA amends Section 223(c)(2) to include bronze and catastrophic plans offered on the ACA exchanges as qualifying HDHPs. A bronze plan, described in Section 1302(d)(1)(A) of the Affordable Care Act (ACA), provides coverage actuarially equivalent to 60% of the benefits provided under the plan. Catastrophic plans, under Section 1302(e) of the ACA, are individual market plans offering only essential health benefits after an individual incurs maximum cost-sharing, with limited exceptions.

Before this amendment, these plans often failed to qualify as HDHPs due to their out-of-pocket maximums exceeding statutory HDHP limits or because they provided non-preventive benefits before the deductible was met. The amendment applies for months beginning after December 31, 2025. The change allows individuals choosing lower-premium bronze or catastrophic plans on the exchange to also benefit from using an HSA. Recent guidance issued in September 2025 significantly expanded access to catastrophic plans for the 2026 plan year by broadening the "hardship exemption" under Section 5000A (which previously mandated minimum essential coverage) to include consumers with incomes below 100% or above 250% of the Federal Poverty Level (FPL) who are ineligible for other subsidies. The individual mandate itself remains in the code, though it carries no penalty. In *California v. Texas* (141 S. Ct. 2104, 2021), the Supreme Court held that states and individuals lacked standing to challenge the mandate because the $0 penalty meant they suffered no injury.

### Direct Primary Care Service Arrangements (DPCSAs)

Section 71308 of the OBBBA addresses the compatibility of DPCSAs with HSAs. DPCSAs typically charge a fixed periodic fee for a range of primary care services. Previously, enrollment in a DPCSA could disqualify an individual from contributing to an HSA, as the arrangement could be considered a health plan providing coverage before the HDHP deductible was met.

The OBBBA amends Section 223(c)(1) to stipulate that a DPCSA, as defined in Section 223(c)(1)(E)(ii), is not treated as a health plan for HSA eligibility purposes. A "direct primary care service arrangement" provides medical care, as defined in Section 213(d) – generally covering costs for the diagnosis, cure, mitigation, treatment, or prevention of disease – consisting solely of primary care services provided by primary care practitioners (physicians specializing in family medicine, internal medicine, geriatric medicine, or pediatric medicine, or nurse practitioners, clinical nurse specialists, or physician assistants, as defined in Section 1833(x)(2)(A) of the SSA). The sole compensation for care must be a fixed periodic fee. "Primary care services" exclude procedures requiring general anesthesia, most prescription drugs (excluding vaccines), and laboratory services not typically administered in an ambulatory primary care setting. The IRS previously interpreted DPC arrangements as "other health coverage" in Notice 2004-50, disqualifying individuals from contributing to an HSA.

The arrangement cannot have aggregate fees exceeding $150 per month (or $300 for arrangements covering more than one individual). This limit is adjusted annually for inflation. Furthermore, Section 223(d)(2)(C) is amended to allow HSA funds to be used to pay for coverage under a DPCSA, overriding the general prohibition against using HSAs for insurance premiums.

This change benefits individuals who prefer the direct primary care model, offering predictable costs and enhanced access to primary care physicians. Patients can now utilize HSAs to cover these arrangements, effectively integrating DPC into their overall healthcare strategy. Practitioners should note that Section 105(b) governs the tax treatment of payments received by employees for personal injuries or sickness through employer-financed accident and health insurance, allowing employees to exclude from gross income amounts paid as reimbursement for medical expenses. However, the IRS issued proposed regulations (REG-104194-23) in 2023 clarifying that Section 105(b) exclusions apply only to reimbursements for actually incurred medical expenses.

## Estimated Tax Penalty Relief for Farmland Sales

The previous section discussed the HSA eligibility expansions under the "One, Big, Beautiful Bill Act" (OBBBA), specifically related to telehealth and direct primary care. Now, this bulletin also addresses the implications of the OBBBA's changes for farmers.

This section dives into Notice 2026-3, which provides relief from estimated tax penalties for taxpayers electing the new Section 1062 deferral for gains from farmland sales.

1.  **The Rule:**
    Notice 2026-3 offers a limited waiver of additions to tax under Section 6654 (for individuals, estates, and trusts) and Section 6655 (for corporations). These sections impose penalties for underpayment of estimated income tax. The waiver applies to taxpayers making a valid election under Section 1062(a) to defer tax on gains from the sale of qualified farmland property to a qualified farmer. Specifically, the IRS will waive the penalty on 75% of the "applicable net tax liability" attributable to the qualified sale or exchange. This means taxpayers can exclude 75% of the deferred tax liability when calculating their required estimated tax payments. The remaining 25% must be included, reflecting the first installment due in the year of the sale.

    To claim the waiver, taxpayers must qualify for and properly make the Section 1062 election. The waiver applies automatically if the taxpayer does not self-report an underpayment penalty. Taxpayers who have already filed and paid the penalty or receive a penalty notice can file Form 843, *Claim for Refund and Request for Abatement*, with "Abatement requested pursuant to Notice 2026-3" noted at the top.

2.  **The Context:**
    The OBBBA, enacted in 2025, redesignated the old Section 1062 as Section 1063 and introduced a new Section 1062 to provide tax relief for farmers. Section 1062(a) allows taxpayers selling "qualified farmland property" to "qualified farmers" to defer the applicable net tax liability by paying it in four equal installments. Without penalty relief, taxpayers might feel compelled to pay the full tax liability upfront as estimated taxes to avoid penalties under Sections 6654 and 6655, negating the intended benefit of the installment payment option. The IRS recognized this potential conflict and issued Notice 2026-3 to reconcile the estimated tax rules with the new farmland deferral.

3.  **The Implication:**
    Tax practitioners advising clients who sell farmland to qualified farmers need to understand the requirements for making a valid Section 1062 election and the availability of the estimated tax penalty waiver. Here's a brief recap of the key terms:

    *   *"Qualified Farmland Property,"* as defined in Section 1062(d)(2)(A), means real property located in the United States that, for substantially all of the 10-year period ending on the date of sale, was either used by the taxpayer as a farm for farming purposes or leased by the taxpayer to a qualified farmer for farming purposes. Furthermore, a legally enforceable restriction (covenant) must prohibit any non-farm use of the property for 10 years after the sale. The terms "farm" and "farming purposes" are defined by reference to Section 2032A(e), relating to special use valuation for estate tax purposes. Section 2032A allows an executor to value "qualified real property" based on its current use rather than its highest and best use. Section 2032A(e)(4) defines "farm" broadly to include nurseries, greenhouses, orchards, and woodlands, while Section 2032A(e)(5) defines "farming purposes" as cultivating soil, raising/harvesting commodities, and handling/packing products. The maximum reduction in the value of an estate under Section 2032A is adjusted annually for inflation, reaching $1,460,000 in 2026 per Rev. Proc. 2025-32.
    *   A *"Qualified Farmer,"* according to Section 1062(d)(3), is any individual actively engaged in farming, within the meaning of 7 U.S.C. §§ 1308-1(b) and (c).

    The "applicable net tax liability," as defined in Section 1062(d)(1)(A), is the excess of the taxpayer's net income tax for the year (regular tax liability under Section 26(b) less certain credits) over the net income tax calculated without regard to the gain from the qualified sale or exchange.

    Practitioners should advise clients to carefully document their eligibility for the Section 1062 election, including the use of the land for farming purposes, the restrictive covenant, and the buyer's status as a qualified farmer. Forthcoming guidance from the IRS will provide further instructions on making a valid Section 1062 election. When calculating estimated tax payments, practitioners should exclude 75% of the applicable net tax liability from the calculation, reflecting the penalty waiver provided by Notice 2026-3.

## Paid Family Leave Transition Relief Extended to 2026

The IRS provided additional relief related to State Paid Family and Medical Leave (PFML) programs, extending the transition period established in Revenue Ruling 2025-4 through calendar year 2026, as detailed in Notice 2026-6. Revenue Ruling 2025-4, issued January 15, 2025, addressed the income and employment tax treatment of contributions and benefits paid under various state PFML statutes. It concluded, in part, that medical leave benefits paid to an employee by a state, attributable to the employer’s contribution under a state's PFML statute, are included in the employee’s gross income under Section 105, which generally covers amounts received under accident and health plans, except as otherwise provided within that section. Such benefits are also considered wages for federal employment tax purposes under Sections 3121(a) and 3306(b), defining "wages" for Federal Insurance Contributions Act (FICA) and Federal Unemployment Tax Act (FUTA) purposes, respectively, and are treated as third-party payments of sick pay under Section 3402(o), governing withholding on such payments.

Revenue Ruling 2025-4 initially designated calendar year 2025 as a transition period for IRS enforcement and administration related to these federal income and employment tax obligations, including information reporting under Section 32.1, which likely refers to regulations under Section 32, concerning earned income tax credit eligibility. This was intended to allow states and employers time to adjust their systems and ensure a smooth transition to compliance.

Several states with PFML programs requested an extension or amendment of the effective date, citing the challenges of implementing the required system changes within the original timeline. Acknowledging these difficulties, the Treasury Department and the IRS have extended the transition period through 2026. During this extended period, states and employers are not required to comply with the income tax withholding and reporting requirements applicable to third-party sick pay for medical leave benefits attributable to employer contributions, and will not be liable for associated penalties under Section 6721 for failure to file correct information returns or Section 6722 for failure to furnish correct payee statements. Similarly, compliance with Section 32.1 and related Code sections (as well as similar requirements under Section 3306, related to FUTA taxes) is not mandated during 2026, and states/employers are not required to withhold and pay associated taxes, thus avoiding related penalties. This extension provides a welcome reprieve for state administrators as they grapple with the complexities of implementing PFML programs and aligns with the broader trend of transition relief offered under the "One, Big, Beautiful Bill Act," (OBBBA). It is important to note that Section 105(h) establishes nondiscrimination requirements for self-insured medical reimbursement plans, potentially causing highly compensated individuals to lose the tax exclusion if the plan discriminates in their favor.

## States Can Now Pre-Elect for 2027 Scholarship Credit Program

Following the extension of Paid Family Leave transition relief offered under the "One, Big, Beautiful Bill Act," (OBBBA), the IRS is now implementing another key provision of the Act. Revenue Procedure 2026-6 outlines the procedure for states to make an "Advance Election" to participate in the Section 25F credit program for the 2027 calendar year. Section 25F, as added by the OBBBA, provides a nonrefundable federal income tax credit for contributions to Scholarship Granting Organizations (SGOs).

**1. The Rule:**

Rev. Proc. 2026-6 introduces a new procedure allowing states to signal their intent to participate in the Section 25F credit program *before* formally submitting their list of approved SGOs. Under Section 25F(g)(1), a "covered state"—defined as one of the 50 states or the District of Columbia that voluntarily elects to participate under Section 25F—must provide a list of SGOs that meet specific requirements outlined in Section 25F(c)(5). Normally, this list must be submitted by January 1 of the calendar year for which the election is being made. However, to provide states and SGOs with additional preparation time, Rev. Proc. 2026-6 creates an "Advance Election" procedure.

To make an Advance Election for the 2027 calendar year, a state must submit Form 15714, "Advance Election to Participate Under Section 25F for 2027," starting January 1, 2026. The IRS explicitly states that no alternative method of election or alteration of Form 15714 will be accepted. Crucially, Section 4.02 of the Rev. Proc. emphasizes that no State SGO list (or other information or attachments) should be submitted with Form 15714 at this stage. Any such submissions will not be processed and will need to be resubmitted later, according to future guidance. The IRS will acknowledge receipt of the Advance Election. After an Advance Election, the *only* subsequent submission that will be processed is the State SGO list itself.

**2. The Context:**

The creation of Section 25F, a federal tax credit for contributions to SGOs, reflects a broader political push to expand school choice and provide financial assistance for private education. Before the OBBBA there was no such federal credit for contributions to Scholarship Granting Organizations, making this a novel feature of the new law. The credit provides a nonrefundable federal tax credit of up to $1,700 for individual cash contributions to qualifying SGOs. The credit becomes available to donors starting January 1, 2027. This advance election procedure responds to concerns from states and SGOs about the relatively short timeframe between the OBBBA's enactment in July 2025 and the usual January 1 deadline for SGO list submission. By allowing states to pre-elect, the IRS hopes to encourage wider participation in the Section 25F program, ensuring that more taxpayers can benefit from the credit starting in 2027.

**3. The Implication:**

Tax practitioners advising state governments and SGOs need to be aware of this new Advance Election procedure. States interested in participating in the Section 25F credit program for 2027 must follow the specific instructions in Rev. Proc. 2026-6 and submit Form 15714 on or after January 1, 2026. It is critical to understand that this is a two-step process: the Advance Election via Form 15714, followed by the submission of the State SGO list at a later date, according to future guidance.

The strict procedural requirements, particularly the prohibition against including the SGO list with the Advance Election form, are essential to observe. Failure to comply with these requirements could jeopardize a state's participation in the Section 25F program for 2027, potentially denying the credit to taxpayers within that state. Tax advisors should also monitor future IRS guidance regarding the submission of the State SGO list, as this guidance will specify the final deadline for submission and any additional requirements. Furthermore, practitioners should be prepared to advise individual taxpayers on the eligibility requirements for claiming the Section 25F credit once the program is fully implemented in 2027, including the limitations on the credit amount and the interaction with other charitable contribution deductions under Section 170. According to Section 25F(c)(3) a "qualified contribution" is a cash contribution to an SGO that uses the money to fund scholarships for eligible students. Tax advisors also need to confirm that SGO's listed in their state meet Section 25F(c)(5) requirements. Donors cannot claim both the federal tax credit and a charitable deduction (§ 170) for the same contribution, as per § 25F(e).

## International No-Rule List Updated; Routine Actuarial Tables Released

This section of the Internal Revenue Bulletin addresses updates to the IRS's no-rule list concerning international tax matters and provides updated actuarial tables necessary for qualified retirement plan calculations. Specifically, the bulletin incorporates Rev. Proc. 2026-7, Rev. Rul. 2026-1, and Notice 2026-2.

### Rev. Proc. 2026-7: Associate Chief Counsel (International) No-Rule List

1.  **The Rule:** Rev. Proc. 2026-7 updates the list of areas under the jurisdiction of the Associate Chief Counsel (International) where the IRS will *not* issue letter rulings or determination letters. The key change is the removal of Section 1059A from the list.
2.  **The Context:** Section 1059A, which concerns the limitation on basis in property imported from related persons, has historically been a complex area involving transfer pricing considerations and customs valuation. The removal of Section 1059A from the no-rule list suggests that the IRS may be willing to provide guidance in certain circumstances related to this section. Section 1059A prevents a U.S. taxpayer from increasing the cost basis of inventory to an amount *more* than what the product was reported as for customs purposes. This change likely stems from increased litigation on the topic. It's key that tax advisors understand its application alongside Section 482, which authorizes the IRS to reallocate income and deductions among related parties to prevent tax evasion or clearly reflect income. The IRS has taken an aggressive stance in Section 482 transfer pricing cases. For example, recent 2023-2024 Tax Court decisions (e.g., *Coca-Cola Co. v. Commissioner*) emphasize the IRS's aggressive stance on imputing income from related-party transactions where substance does not match form.
3.  **The Implication:** Tax practitioners can now potentially seek letter rulings on issues involving Section 1059A. This could provide greater certainty in planning transactions involving the import of goods from related parties, particularly where valuation methodologies are complex. However, the IRS may still decline to rule on specific cases based on their particular facts and circumstances. Private Letter Ruling (PLR) 2025-111859-25 clarified that § 1059A does not necessarily limit basis to customs value when a "deductive value method" is used, provided the taxpayer can reconcile tax costs with customs valuations through Advance Pricing Agreements (APAs).

### Rev. Rul. 2026-1: Covered Compensation Tables for 2026

1.  **The Rule:** Rev. Rul. 2026-1 provides the covered compensation tables under Section 401(l)(5)(E) for the 2026 plan year.
2.  **The Context:** Section 401(l) governs the permitted disparity in employer-provided contributions or benefits in qualified retirement plans, often referred to as integration with Social Security. Section 401(l)(5)(E) defines "covered compensation" as the average of the contribution and benefit bases under Section 230 of the Social Security Act for each year in the 35-year period ending with the year the employee attains Social Security retirement age. These tables are used to determine the maximum amount of compensation that can be considered when calculating contributions or benefits under a qualified retirement plan that integrates with Social Security. The taxable wage base for 2026 is $184,500.
3.  **The Implication:** Plan sponsors and administrators must use these tables to ensure compliance with Section 401(l) when designing and administering qualified retirement plans that are integrated with Social Security. Using outdated or incorrect tables can result in plan disqualification.

### Notice 2026-2: Corporate Bond Yield Curves

1.  **The Rule:** Notice 2026-2 provides guidance on the corporate bond monthly yield curve, spot segment rates under Section 417(e)(3), and 24-month average segment rates under Section 430(h)(2). The notice also provides guidance on the 30-year Treasury securities interest rate under Section 417(e)(3)(A)(ii)(II) as in effect for plan years beginning before 2008, and the 30-year Treasury weighted average rate under Section 431(c)(6)(E)(ii)(I).
2.  **The Context:** Section 417(e)(3) dictates the interest rates used to determine the present value of certain benefits under defined benefit pension plans for purposes of minimum present value requirements. Section 430 outlines minimum funding requirements for single-employer defined benefit plans, specifying the interest rates used to calculate a plan's target normal cost and funding target, referencing 24-month average segment rates. Section 431 details the minimum funding requirements for multiemployer plans, using the 30-year Treasury weighted average rate to calculate current liability for the full-funding limitation.
3.  **The Implication:** Actuaries and plan administrators need to use these updated yield curves and segment rates to accurately calculate minimum funding requirements, target normal costs, and benefit present values for defined benefit pension plans. These calculations are crucial for complying with ERISA and ensuring the financial health of these plans. For December 2025, the adjusted 24-month average segment rates for plan years beginning in 2024, 2025 and 2026 are 4.75, 5.26 and 5.70.